In homes across America, many consumers are watching more SVOD video than pay TV. This puts pay TV into a role it is unused to: as an augmentation to SVOD. What does this mean for pay TV, and the entire market?
80M SVOD-first consumers
Two-thirds of consumers say they use SVOD services. Of those, 93% say their favorite service is a part of their daily viewing lives. And in many of those homes, SVOD services are used more than traditional pay TV.
Nielsen says the average person watches about 4 hours and 23 minutes of live and timeshifted TV each day. So, how many SVOD users are watching at least half this amount on SVOD services? TiVo says 37% of SVOD users watch over 2 hours of video on their online services. That equates to about a quarter of the U.S. population. 7% watch 4 or more hours per day on SVOD services. That means at least 80 million Americans are likely SVOD-first, meaning SVOD makes up at least half of their TV-style viewing.
For these people, the value equation for TV services is radically different from the rest of the population. And this has huge implications for the pay TV industry.
Traditional Pay TV in SVOD-first homes vulnerable
Leichtman Research says 62% of traditional pay TV homes also have at least one SVOD service. For households in that group with majority SVOD-first viewers, pay TV could well be looking very expensive relative to its second-fiddle status. Even if they are subscribing to all three of the top SVOD services they are likely only spending $30 a month on them. The average Comcast video subscriber is spending $85 a month, and Dish subscriber $90 a month.
With such a huge price difference, many of these homes are likely looking for viable alternatives to their current pay TV provider.
vMVPDs a better fit for SVOD-first homes
For SVOD-first homes, vMVPDs like Sling TV and Hulu Live could be a viable, much cheaper alternative. Sling TV’s entry package, Orange, provides more than 25 channels including ESPN, TNT, CNN, and Disney Channel for $20 a month. $5 more gets DVR services, and many more channels are available in $5 add-on packs. Hulu Live provides access to 59 or so channels, includes DVR service, and access to Hulu’s extensive on-demand library.
For sure, a viewer can’t replace a regular TV subscription channel-for-channel with vMVPDs. But this probably isn’t as important for SVOD-first viewers. They simply don’t need as much from their pay TV services as traditional TV viewers.
Pay TV is worth less to SVOD-first consumers
Simply put, pay TV is not worth as much to SVOD-first consumers. And this is perhaps the biggest challenge facing pay TV industry executives. The product they are selling at the price they are charging is just not perceived as good value by SVOD-first customers.
The full impact of this simple fact is just beginning to be understood by the pay TV industry. Dish Network’s launch of Sling TV at an entry price of $20 is no accident. Neither is the fact that Comcast plans to charge $15 a month for its broadband-based Instant TV.
Pay TV providers have come to this position reluctantly. For example, Stephen B. Burke, Comcast Corporation – Senior EVP & CEO, NBCUniversal, speaking at this week’s earnings call had this to say about the vMVPD business:
“And as we’ve said before, we are skeptical that it’s going to be a very large business or profitable business for the people that are in it.”
Mr. Burke may be right on both counts and Comcast may ultimately choose not to participate in the vMVPD market because of it. However, it doesn’t change the fact that for the growing legions of SVOD-first consumers low-priced products could be the only way they will continue to use traditional TV services at all.
Why it matters
There is a growing number of SVOD-first consumers.
For this group, pay TV services are an augmentation of their primary services, SVOD.
For SVOD-first consumers, full-priced pay TV subscriptions are out of step with the value they bring.